Of course central to this debate is the
issue of what constitutes a fair tax system. To most that is one where those
that have the most pay the most. The reason why tax avoidance is seen to be so
invidious by many is that it distorts this principle. A millionaire can end up
paying a smaller fraction of his income in tax than his secretary or his
cleaner. Indeed in many cases he can end up paying no tax at all. It is not
just that he can end up paying less tax that is the problem. It is the fact that
he seems to be able to pick and choose which tax he would prefer to pay, and
when he would prefer to pay it. In short, it is because there are opportunities
open to him that are not open to the general population. Thus the playing field
is not flat and it is not fair.

It is probably to be expected that in times
of austerity for many (although not the few) there will be a sense of moral
outrage directed at those perceived to be not paying their fair share, but it
should be remembered that the political issue of tax avoidance has been with us
for many years. It was a particular cause célèbrein the
boom years, and every year the public's expressions of outrage against it appeared
to grow louder. So too did the protestations of certain venerable politicians
that "Something must be done". Yet nothing ever was done, or so it
seemed. Instead what we got were a plethora of appeals to the moral conscience of
the perpetrators. Yet what many fail to realize is that morality doesn't come
into it, or even worse, that tax avoidance in many cases may actually be the
most moral action available.

If you are a tax accountant it is your
moral (and legal) duty to do the best by your client. That means finding the
lowest tax rate for the client. If you are a company finance director your
moral and legal duty is to maximize the return to your shareholders. That
inevitably means minimizing the funds paid to everyone else including employees
and the taxman. So, when it comes to paying tax, morals are for individuals. When
you are handling the tax affairs of others, morality doesn't come into it. It
is about applying the letter of the law. So if politicians want to eradicate
tax avoidance, then surely the onus is upon them to legislate to that effect? Yet
nothing ever seems to change. Now why is that? Is it because it is really so
difficult to legislate against tax avoidance? I think not.

You see if you look at all the various schemes
on offer for the average man or woman with more disposable income than social
conscience, they all boil down to a handful of basic mechanisms. These schemes often
involve off-shore companies, but they also tend to exploit the use of loans,
rebates, rents, "gifts" or arbitrage to minimize the tax liability of
the company or individual. As I will outline in later posts, most of these
schemes could be closed down with the right legislation and a modicum of political will.